Insights

When is a contract unfair?

The Competition and Markets Authority (CMA) has recently published research which reveals that 54% of businesses surveyed do not fully understand the rules on unfair terms.

Unfair terms in consumer contracts are not generally enforceable. This is an important element of UK consumer law that aims to redress the imbalance between commercial businesses and consumers (who often have no choice but to accept the businesses' terms of sale).

It is important to both businesses and consumers that their terms are 'fair', not least to provide certainty that the contract can be relied upon in the event of a dispute.

According to CMA guidance, a term is unfair 'if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer'.

Schedule 2 of the Consumer Rights Act 2015 sets out terms which may be regarded as unfair, commonly known as the 'Grey List'. These include terms such as excluding liability for personal injury or death, or imposing disproportionately high penalty fees for breaches of the contract by the consumer.

The Research

Some of the findings from the survey include:

Awareness of the rules around Unfair Contract Terms is relatively low (with 54% of business reporting that they did not know them well or had never heard of them at all).

Knowledge of the Consumer Rights Act 2015 was even lower (only 15% were familiar with it).

On average, one in seven businesses reported practising at least five potentially unfair behaviours – the most common being taking deposits or advanced payments and limiting business liability.

It was not uncommon for businesses to think that the signed contract is final, not realising that there are scenarios in which they would not be able to enforce terms against consumers.

More than 50% of businesses surveyed have had a dispute in the past over their terms, though only a small number reported having disputes occasionally or often.

A third of businesses surveyed who admitted to using cancellation charges reported that they had experienced a dispute about the payment of these charges, revealing the potential complications with levying these charges.

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